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A Country in the Cloud: Estonia Offers E-Residency

Estonia is a small country in the Baltic region of Northern Europe with a population of 1.3 million and a GDP of US $23 billion, roughly 10% of Apple’s annual earnings.

One of the benefits of establishing a company in Estonia is that there is no corporate tax on money that is left within the company.

Since its independence from Russia in 1991, Estonia has been rapidly implementing a digital economy. It established online voting in 2007, has provided many government services online, has medical records and prescriptions online and has a fiber broadband network that gives it average speeds similar to those of Korea.

Perhaps the most radical move by the Estonian Government was to introduce an e-Residency program in 2014 which would allow anyone from around the world to become a virtual citizen and start, and run, a business from Estonia.

Applying for e-Residency is simply a matter of filling out an online form, uploading a copy of a passport and a photo, and paying a 100 Euro fee. The application process takes about 4 weeks, during which time a police background check is run. Once approved, it is necessary to turn up at a collection point, usually an Estonian embassy, and collect a smart card that is loaded with a digital certificate representing an e-Resident’s digital identity.

Every e-Resident is given an official email address @eesti.ee and is then able to use one of the many services to set up a company and bank account in the country, although the bank requires the person opening the account to visit Estonia at least once to open the account. One of the benefits of establishing a company in Estonia is that there is no corporate tax on money that is left within the company.

Since its inception, there have been 17,000 e-Residencies approved with the majority originating in Finland, Russia, and the USA. 1,380 new companies have been established by e-Residents, mostly in the technology area but covering a range of other activities. There has been a surge in interest from the UK since the vote to leave the EU with an Estonian e-Residency seen as one way of retaining the ability to operate within the economic zone.

The aim is to have 10 million e-Residents by 2025 and so there is still a way to go to reach that number but the concept has created a constant stream of visitors from other countries trying to learn about the program.

The idea of a “cloud country” that follows the same principles of cloud computing or cloud data storage is one that resonates with all sorts of possibilities. Firstly, it acknowledges that as far as our lives on the Internet are concerned, the idea of nationality has less meaning as we are able to interact with anyone, at any time, with almost any service, around the globe. Physical restrictions that are imposed by geography, like licensing of content, for example, can be circumvented through the use of VPNs connecting through to any country at will.

The Internet is creating global communities that are organized by common interests and ideals rather than physical location.

Once a business is online, it can operate globally with relative ease, handling different currencies and different tax requirements transparently. Even language is no longer a barrier with services like Google Translate becoming increasingly fluent.

The Internet and social networks have created and facilitated global communities that are organized by common interests and ideals rather than the main driver of national identity: physical location.

Like Amazon has done with its computing technology, Estonia has put its government services online and made spare capacity available for others outside its country. It has stopped short of extending the benefits and services offered to e-Residents but that is really only a matter of time as e-Residents contribute increasing amounts of revenue to the country. e-Residency doesn’t give the holder any additional rights to enter the country or the EU, but considering that travel is sometimes a necessity for business at least, it makes sense to provide e-Residents with some form of access to travel freely within the European Union.

In researching this article, I applied for an Estonian e-Residency whilst in Helsinki at the Slush startup festival in November 2016. Once accepted, to pick up the identity card, I had to travel to the Estonian Embassy in Canberra, Australia from Perth where I live. Walking through Australian bush on a hot day was a far cry from the subzero temperatures of Helsinki. Having returned home, e-Residency has now thankfully moved online.

Associate Professor David Glance is director of the UWA Centre for Software Practice, a UWA research and development centre. Originally a physiologist working in the area of vascular control mechanisms in pregnancy, Professor Glance subsequently worked in the software industry for over 20 years before spending the last 10 years at UWA.